The Underfunded Cash Balance Plan

Each year the actuary certifies a minimum required contribution (the amount needed to keep the plan on its statutory funding track), due 8½ months after the plan year ends (September 15 for calendar-year plans). A shortfall doesn't have to be repaired all at once: it amortizes over a period of years, which spreads a market loss across future contributions rather than demanding it back immediately.

Miss the minimum, and excise taxes engage — starting at 10% of the unpaid amount and escalating severely if the failure isn't corrected. Uncorrected failures ultimately threaten the plan's qualified status, which is the outcome every other option exists to prevent.

What is never on the menu is the employer cutting benefits participants have already accrued; the law protects those from employer reduction. (The narrow exception, covered below, is a majority owner voluntarily electing at termination to reduce their own benefit.) Because the levers below operate only on future accruals, acting early matters.

When profits drop, the sequence is: call the actuary before the plan year ends, size the true minimum (often far below the recommended contribution you're used to seeing), amend or freeze prospectively if the change looks durable, and fund the certified minimum by the September backstop. In that order, a bad year costs flexibility rather than penalties. In reverse (silence until the deadline passes), it costs excise taxes and cleanup work that dwarfs the contribution that was missed.

Underfunding plus a closing business is its own path: a modestly underfunded small plan can usually still terminate cleanly; the common mechanism is a formal, documented election by the majority owner to reduce their own benefit so staff are paid in full, and that beats letting an unfunded obligation drift. The termination guide covers the process.